The Canadian dollar had reasons to move higher Tuesday. The U.S. dollar index faced pressure, which saw it reach six-week lows against a basket of currencies. At the same time, Statistics Canada released supportive economic data pointing to retail sales climbing 2.2% in January, well-above pre-report expectations and a recovery from the troublesome decline faced in December.
As seen on the attached chart, the spot Canadian dollar opened above $.75 for the first time in three sessions, climbed to $.75298 CAD/USD prior to facing resistance. Today's high reached a 15-day high before turning lower, while breaching various levels of resistance. First is the contract's 20-day moving average (red line), which has posed a challenge for the exchange rate since mid-February. Next is the spot dollar's 100-day moving average (purple line), which is calculated at $.7519 CAD/USD, with today being the second time in four sessions that trade has failed to hold above this level. The third level of technical resistance posing a challenge is found at $.75103, the 38.2% retracement of the move from the Jan. 31 high to the March 9 low.
The lower-study of the attached chart keys on the net futures position held by noncommercial traders and the trend in their holdings. For five consecutive weeks this group added to their bullish net-long position, starting in late January, prior to reaching a high of 30,090 contracts as of the week of Feb. 28. This was the largest bullish position held since January 2013, although in the most recent data seen for the week of March 14, this group has pared this position by 8,632 contracts, or 29%, in total over the past two weeks.
The direction of crude oil along with ongoing concerns surrounding the upcoming federal budget could be key to the Canadian dollar's recent weakness. Crude oil has fallen $1.44 so far this week, having fallen in two of the past three weeks. The bullish net-long futures position in NYMEX crude held by speculative traders has falling in each of the past three weeks after having reached an all-time high as of Feb. 21 data. This could have a bearish spillover impact on Canadian dollar speculators.
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